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E-banking, gaining clickshare


As we enter the twenty-first century, the financial services and the banking industry are finding themselves immersed in a sea of change. The rising tide of change that faces the industry is caused by many factors. However, most of these changes have been brought about by two trends: better communications and faster computers. The merging of these two trends has brought a new pervasively networked world where traditional ways of doing business are constantly under threat. Although the most conspicuous of the "new" methods of doing business is the Internet, today's most technologically adept institutions are building multi-channel access to their "e-banking" facilities, allowing their customers access through a wide variety of interactive devices. As the pace quickens in the race to service customers through a plethora of new channels, financial institutions who do not tightly define their e-commerce strategy will be putting their business at risk. The next institution is only a click away thus the primary strategy should be to ensure that your bank gains both customer "mindshare" and "clickshare". Achieving an environment whereby the customer has good reason to conveniently "e-visit" the bank on a frequent basis will undoubtedly improve customer retention and cross sell ratios.

To simplify our discussion of financial institution e-commerce strategy, we will focus the topic on the Internet, bearing in mind that the most of the strategies and options outlined here are true across the spectrum of emerging communications technology. Also, it should be recognised that if an institution is to play in the new connected world as a reputable player then the ability to adapt across delivery channels is not an option, it is imperative.

The exponential growth in Internet use and e-commerce is now a well-documented fact. Forrester research expects that the dollar value of global business to business e-commerce will reach USD1.4 trillion and business to consumer e-commerce will reach USD41 billion by the year 2003. All of these transactions involve the movement of funds from one place to another. These money flows will create great opportunities for financial institutions that are nimble enough to provide services within the medium of electronic commerce. Furthermore, like any other business, financial institutions must go where the customers are, and today they are moving to the Internet.

"The Internet economy is shifting consumers toward electronic product and service delivery channels," said Byron Patra, Senior Analyst at Netroscope. "This shift in consumer behaviour is especially visible in the banking sector of the financial services industry. Consumer trends and the highly competitive dynamics of the banking industry are the driving forces behind Internet banking. Consumers' demand for easy to use, accessible, configurable, and manageable financial services will drive visionary banks to offer true Internet banking branches loaded with innovative functionality and services."

Financial institutions are entering the world of the Internet in many ways and for different reasons. Many are entering the Internet as a purely defensive measure, using their Web presence as a marketing tool to tell the Internet world that they exist (but please give us a call or stop at a branch). Others are slowly building Internet capabilities to let their customers actually do something useful through the bank's web-site, such as looking at their account balances or checking recent account activity. Still other banks have already built transaction capabilities into their Internet offerings. Although the functionality and complexity of transactional sites varies widely, these facilities clearly differentiate the best (and most network adept) institutions from the ones where their web strategy is largely defensive in nature. Finally, there are a few daring institutions that are attempting to build complete web-based banking solutions that provide customers with a personalised portal into their complete financial affairs enabling their customers to come together in electronic communities to buy and sell goods, services and information.

As traditional financial institutions struggle with their Internet strategies, another group of non-banks are not only eyeing the market, but are aggressively moving into the territory formerly regarded as reserved for financial institutions. The Internet is likely to blur the lines between companies that do and do not provide financial services. Many of these non-bank companies have large market values and can spend their way into a financial intermediary role without the baggage of legacy business ideas, traditional market views and entrenched system architectures. From the other side of the spectrum, are a handful of well-capitalised market leading financial institutions with the size and wealth to displace smaller institutions in the expensive race to capture the customers through electronic means. The combination of these two groups is a threat to the smaller and mid-tier financial institution in the new networked economy.

What can or should a typical financial institution do?
The first step in building a sound strategy to meet customer needs in the new order network economy is to figure out where your institution wants to be, what it is good at, and what are its strengths. A simplified value chain for most financial services can be broken down into three parts: product origination, delivery/operations technology, and sales/marketing. Most financial institutions participate in all stages of this simplified value chain. In examining our future we must look into each of these areas and answer a few simple questions.

For many financial institutions, product origination is often thought of as the core of the business. Loans, deposits, cash management services, mortgages and many other products are thought to be the "products" of the bank. While this is true to some degree, if we look closer, there is often very little differentiation at the product level from one institution to another in many of these product lines. We should ask ourselves: What makes our products unique? Do we originate products for just ourselves or do we sell them on to other distributors? Do we use unique technology that gives our products an edge in the market?

Product and Service Promotion
Before looking at the technology of operations and delivery, let us first look at sales and marketing. Most of our questions here should naturally surround the customer aspects of our business, such as: Who are our customers? Who do we want to be our customers? How do we reach them? And finally, how can technology help us reach them? Many institutions, while being strong in their product origination area have never had to think hard about selling to their customers. Often, the institution had a geographically defined customer base; relying on barriers of physical distance to ensure customer loyalty. The Internet is breaking down previously held geographic monopolies, while presenting institutions with opportunities to sell and deliver their products far beyond their home market. However, the critical success factor in gaining the customers' attention in a world of rapidly reduced attention spans and the commoditisation of financial products, is the ability to continuously electronically pro-actively engage the customer. Such engagement will primarily emphasise the provision of service to the customer that will create a buying environment within which the customer makes the choice to deepen the relationship with the institution. This will occur when the institution can begin to electronically deliver those services that provide real value to the customer and to do this on a personalised basis as if this is the only customer you have.

Technology Support
The differentiating factor in the networked world is technology. While all financial institutions use technology to some degree, the way institutions deploy technology, think about technology and build technology differs greatly from institution to institution. Prior to generating an e-commerce strategy for any institution, it is useful to ask some questions about your institution's technology management, operations, deployment and development. Does your organisation develop its technology/applications in house? Is the technology management integrated with the business management? Do you lead the market in technology use? What do you use technology for: to reach customers or for back office processing?

We often find that technology is used by most organisations primarily for back office operations, this having evolved along product lines of business over many years. As we move into the Internet age, this must change to building technology and business process around the needs of the customer. Connecting customers to banks exposes all the inefficiencies of past mass production approaches where the objective has been the efficient processing of debits and credits against "one size fits all" products. In order to connect to your customers (and allow them to do something useful through the Internet) you must enable pathways into traditional back office areas to develop delivering these capabilities to the customer on a knowledgeable and intelligent basis. To do this, an organisation must change the way they think about both information and technology. Information and how you deliver it to your customers, will become the most important differentiating factors between institutions in the network economy.

Building the Strategy
Only once you have looked at these three aspects of your institution's value chain can you start to define your network economy business strategy. Obviously, the easiest route to insuring your future is to play to your strengths. By defining where your strengths lie, you can define your turf and plan ways to defend and expand it via the Internet. Companies whose strength lay in unique product origination may find that the best way to exploit this strength in a connected world is to let others distribute the products. Sales and marketing oriented financial institutions should look at the Internet as an opportunity to excel at their core strength of managing customer relationships selling financial products manufactured by other financial institutions. The Internet (and the related multi-channel delivery mechanisms) is a tool that allows unique sales and marketing opportunities on a one to one basis. Technology heavy companies paradoxically may face the toughest challenge in moving to the new Internet enabled world. Many technology oriented financial institutions are often unwilling to give up the "not invented here" syndrome. Hence, many have trouble integrating new technologies from disparate sources. These institutions must focus that much harder to bring in partners.

Developing Partnerships
Financial institutions must look at technology providers as business partners. Likewise, as the relationship between the technology providers becomes closer to the financial institution, they must re-invent the delivery and pricing models employed. Letting the technology partners take care of the technology has several advantages that include: quicker time to market, the ability to provide specialised staff, infrastructure costs that spread over many institutions, lower capital costs, lower risk of failure and lower technology switching costs. While it is unlikely that each technology relationship will bare out all of these gains, judicious selection and managing of the relationships with your technology partners is an imperative. Proper partnering can give your institution a number of advantages in the marketplace that will help you compete. Your organisation can appear to have Internet expertise far beyond what would be available in house. Your geographical reach can be expanded beyond its traditional borders. New technologies can be implemented faster as the experience of your technology partner can be leveraged through his dealings with multiple customers. Finally, the ability to spread your offerings over multiple delivery channels will become more and more important. This can be most easily achieved by keeping your institutions technology choices linked closely to industry standards such as OFX, FIX and ISO. Deviating to custom protocol solutions for an individual delivery channel may provide short term gain, but may well lead to complications and delays when working with new channels and technology partners.

According to the Tower Group "All of the roughly 30,000-40,000 financial institutions in the US will soon have a URL and a Web site, just as they all have a phone number. (At least 6,000 such financial institution URLs are listed in Yahoo! today.) The technology behind the Web site will be a commodity available from outsourcers in a few years. In other words, it is not a Web presence but rather a Web strategy that provides an institution's competitive advantage."

Building a competitive strategy for the network economy will help your institution leverage the three advantages you have as an incumbent financial institution: brand, capital and customer base. However, these three components - the core of your business, will not remain stationary in the Internet age. To succeed and face the Internet challenge, financial institutions must accept the changes to the industry and build upon these changes to make the organisation stronger. The incumbent position can be either a blessing or a curse. Those institutions that develop a sound strategy for the Internet by taking a deep look at what there strengths are may find that the pervasive networks of today are truly a blessing for their business. It will be these e-banking organisations that dominate "clickshare" that in turn will lead to "walletshare" that will become the new order financial institutions of the future.

System Access is a privately held company - the shareholders include E.M. Warburg, Pincus, a major U.S.-based global private equity investment firm and the management team. System Access is a global software-enabled solutions company addressing specifically the needs of the banking industry. With offices in Singapore, London, New York, Manila, Bangkok, Dubai and Bratislava, System Access is the provider of netSYMBOLS, companyís flagship product, an integrated scaleable advanced technology system covering front to back eBusiness infrastructure that supports customer centric delivery of financial services across multiple channels in the networked economy.

Gerrit Anderson
Vice President for Global Marketing
System Access Pte. Ltd.




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